[header date=”30 November 2018″]Floyd Mayweather and DJ Khaled learn a lesson about securities law, Amazon changes its tack on blockchain, and UBS bullies crypto.[/header]
What you need to know—and why
Did you hear the one about the boxer, the rapper, and the SEC? Prizefighter Floyd Mayweather and rapper-slash-self-promoter DJ Khaled have settled charges with the US securities regulator for promoting ICOs on social media without disclosing that they were paid promoters. Mayweather will fork over more than $300,000 in penalties and another $300,000 in forfeited payments he received from Centra Tech and other coin issuers for pumping their ICOs (“You can call me Floyd Crypto Mayweather from now on,” read one of his tweets). Khaled, who will pay more than $150,000 in penalties, also shilled for Centra Tech, whose three co-founders have all been arrested for securities fraud.
[takeaway]Payola is rampant in the crypto world, where self-styled gurus join celebrities on the industry’s payroll, often without disclosing their relationships, according to a special report by Reuters. While promoting products like beauty supplies and clothing is typical on social media (and not really governed by disclosure requirements), pumping up cryptocurrencies can fall under anti-touting provisions in US securities laws. The SEC is again showing that it is serious about policing this unruly territory. ↗️[/takeaway]
A crypto kingpin embarks on a hunger strike. Alexander Vinnik, a Russian who allegedly laundered billions of dollars through now-defunct cryptocurrency exchange BTC-e, is wanted for trial by the United States, France, and Russia. The supreme court in Greece, where Vinnik has been held since last year, has been grappling with where he should be extradited. Vinnik is protesting his conditions and what he calls a lack of due process, which he fears will ultimately result in a life sentence in the US, according to his lawyer.
[takeaway]BTC-e’s possible role in laundering bitcoin stolen in the 2014 Mt. Gox hack is worth following, and Vinnik’s trial could shed light on one of the industry’s enduring mysteries. ↗️ [/takeaway]
Amazon Web Services launches a managed blockchain service. The Amazon subsidiary this week announced the Quantum Ledger Database and Amazon Managed Blockchain to host projects it thinks customers are trying to solve with blockchain. Potential uses for the ledger product include finance, manufacturing, insurance, human resources, and payroll. Customers include Workday, Liberty Mutual, Verizon, Philips, and GE Aviation.
[takeaway]A year ago, Andy Jassy, the CEO of AWS, was unimpressed with blockchain, explaining there aren’t many uses for the technology. But handing infrastructure management over to Amazon seems antithetical to the decentralized blockchain movement. ➡️[/takeaway]
Crypto-for-blogging platform Steemit cuts staff in depths of bear market. The company, which runs a Reddit-like site that allows readers to reward writers with a native token, has laid off more than 70% of its staff. “We had been relying on projections of, basically, a higher bottom for the market,” explained dejected CEO Ned Scott, who elaborated on cost-cutting plans in a short post.
[takeaway]Steemit was funding operations by selling its own STEEM coin, and while onlookers wonder whether it mismanaged its treasury, selling crypto tokens isn’t a long-term strategy, especially when a business has real, recurring costs in fiat currencies. Asking a business to be recession-proof is unreasonable, but basing a strategy on a bullish crypto market seems naive. ↘️[/takeaway]
Coinbase launches over-the-counter trading for institutional clients. Over-the-counter (OTC) trading connects buyers and sellers directly, rather than through a public order book where anyone can place orders. Thus, OTC trading can facilitate large transactions without impacting market prices. “We found a lot of institutions were using OTC as an on-ramp for crypto trading,” Coinbase’s Christine Sandler explained to Cheddar. In April, Gemini, a competing exchange run by the Winklevoss twins, debuted a similar OTC service called “Block Trading.”
[takeaway]Even if Coinbase only collects a nominal fee by offering OTC support, it’s obviously a lucrative endeavor considering the size of potential buyers and sellers. Coinbase may have felt it was missing an easy opportunity and losing market share to rival exchanges. Sandler said institutional investment might help reduce market volatility—a common claim in the crypto sphere, but one which hasn’t played out just yet. ↗️[/takeaway]
[supplemental headline=”Chart interlude”]
Crypto token and wallet provider Clovr ran a sentiment-analysis algorithm on media articles written over the past five years or so. It assigned “positive and negative polarity scores” to each story, which it claims reveals the “ideological disposition” of the outlets that cover crypto. We’re not totally convinced by the methodology, but according to this measure Quartz comes off as pretty even-handed, for what it’s worth.
[img src=”https://cms.qz.com/wp-content/uploads/2018/11/atlas_r16FcO00X@2x.png”]
[mailto filter=”Chart” subject=”Here’s a chart idea…”]Got a killer chart idea? Let us know[/mailto]
[/supplemental]
Crypto-meets-finance
Nasdaq is aiming to offer bitcoin futures trading in first quarter of 2019, Bloomberg reported. Trading bitcoin futures—which allows people to place bets on the token’s price—was much in demand during bitcoin’s price explosion last year, but interest has waned as prices have plunged. Nasdaq would join CME and Cboe, which both launched crypto futures in Dec. 2017, while Intercontinental Exchange, owner of the New York Stock Exchange, plans to offer futures on its oft-delayed Bakkt platform, now set for January.
[takeaway]CME and Cboe combined to trade fewer than 9,000 contracts a day in the third quarter, far less than initial expectations. Unless prices rebound, it’s not clear that adding new exchanges will do anything to increase trading. ➡️ [/takeaway]
[supplemental headline=”Reasonable doubt”]
UBS comes to bury bitcoin, not praise it. In a blog post, Paul Donovan, global chief economist for UBS, suggested that cryptocurrency “may be in its death throes,” a damning assessment that coincided with the 2018 lows for bitcoin and ether prices. Cryptocurrency’s designers “are brilliant at maths,” he said, but “appear to know nothing about economics.”
The problem, Donovan contends, is that the supply of cryptocurrency can only go up. To the casual observer, it might seem like Donovan is wrong—after all bitcoin has a fixed supply of 21 million coins, and of course, its supply can go down (coins are often lost when people send them to a wrong wallet address, lose a private key, or fail to provide recovery information to beneficiaries). But in another sense, Donovan is right because nothing has prevented thousands of copycat cryptos from popping up and being listed on the global charts (even if they don’t trade on popular exchanges).
“Giving money to cryptocurrency creators was not useful,” he concludes. [/supplemental]
Regulatory watch
Bitcoin is not a security, and a bitcoin ETF remains unlikely. SEC chairman Jay Clayton explained that because bitcoin is designed to be a replacement for payments made using sovereign currency, it does not fall under the agency’s definition of a security. Clayton’s statement at CoinDesk’s Consensus Invest conference received a smattering of applause, but surprised few in the audience since bitcoin has long been regarded as a commodity by US attorneys and financial regulators.
Later, Clayton reiterated concerns about fraud and manipulation in the cryptocurrency market. Until consumer protection issues are resolved, he explained, a bitcoin exchange-traded fund will not go forward. “Those kinds of safeguards don’t exist in many of the markets where digital currencies trade,” he said.
[takeaway]Considering that the US Department of Justice is reportedly examining whether crypto prices have been propped up by Tether—a cryptocurrency pegged to the US dollar and supposedly backed by equivalent reserves—it’s possible Clayton’s stance (and hesitation) is informed by that investigation. Crypto enthusiasts often champion bitcoin ETFs as potential avenues for new retail and institutional investors, but it’s clear we shouldn’t expect a bitcoin ETF anytime soon. ➡️[/takeaway]
[supplemental headline=”Hacks, scams, and capers”]
Three Bulgarians were arrested and charged with stealing $3 million worth of cryptocurrencies. Approximately 5 million levs of the stolen digital currency was seized by authorities, as well as computer hardware, notebooks, and a car, according to the Office of the General Prosecutor. As its law enforcement has cracked down on crypto fraud, Bulgaria is sitting on a trove of bitcoin, now worth around $1 billion.
The US Treasury Department imposed sanctions on Iranian bitcoin bandits. Two Iranian men who helped launder bitcoin connected to the SamSam ransomware hacks, which extorted US hospitals, schools, and government agencies, were identified by officials, the Wall Street Journal reported. The government also intends to prosecute two additional Iranians who are suspected of carrying out the hacks. This marks the first time that the US has put specific cryptocurrency wallet addresses on its Specially Designated Nationals list, a step that obligates exchanges to monitor their platforms for sanctioned users.
[/supplemental]
Crypto calendar
🗣 January 8 Israel Bitcoin Summit. The Tel Aviv gathering features Nick Szabo (creator of the term “smart contract”), Meni Rosenfeld (chairman of the Israeli Bitcoin Association), and Ittay Eyal (assistant professor at Technion), among others.
🗣 January 31 Wall Street Blockchain Summit. The one-day event in New York will include discussion of market infrastructure, legal and regulatory considerations for blockchain and digital assets, and accounting matters related to crypto assets.
[mailto filter=”Calendar” subject=”This is happening”]Tell us about your upcoming news and events.[/mailto]
[supplemental headline=”A humble request”]
Private Key was born out of a desire to document the excitement—and chaos—of the cryptocurrency world. In an effort to improve our newsletter and provide you with the best coverage possible, we invite you to take our short survey. One lucky respondent will win one year of Private Key membership for free.
[/supplemental]
Please send news, tips, and Bulgarian levs to privatekey@qz.com. If this email was forwarded to you, click here to sign up for your own subscription, which includes a free two-week trial. Today’s Private Key was written by Matthew De Silva, and edited by Oliver Staley and Jason Karaian. Happy Chanukah!